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Bank of Scotland, part of the Lloyds Banking Group and owner of the Halifax, was today fined £4.2 million for poor record-keeping which led to it making £20.4 million of goodwill payments to 22,700 customers who were not actually entitled to them.

The Financial Services Authority said the bank held inaccurate records for 250,000 people with Halifax mortgages for a long period of time from 2004 to 2011.

When Halifax was forced to contact customers with standard variable rate mortgages who had been misled over caps on the rate last year, it failed to get hold of all the right people.

The FSA monitored consumer websites and discovered many customers who should have been compensated had not been contacted and then when it asked for more details found that tens of thousands had been paid who need not have been.

Tracy McDermott, head of enforcement at the FSA, said: “This breach is particularly serious because the inaccuracies built up over a period of seven years. There was no structure in place to identify errors as they occurred and no checking procedures thereafter.

“In a complicated organisation where several legacy systems exist, firms have to make sure they are synchronised, otherwise it is their customers who suffer.”